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Form 8-K CISCO SYSTEMS, INC. For: Aug 12

August 12, 2015 4:12 PM EDT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 12, 2015

 

 

CISCO SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

 

California

(State or other jurisdiction of incorporation)

 

0-18225   77-0059951
(Commission File Number)   (IRS Employer Identification No.)
170 West Tasman Drive, San Jose, California   95134-1706
(Address of principal executive offices)   (Zip Code)

(408) 526-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On August 12, 2015, Cisco Systems, Inc. (the “Registrant”) reported its results of operations for its fiscal fourth quarter and fiscal year 2015 ended July 25, 2015. A copy of the press release issued by the Registrant concerning the foregoing results is furnished herewith as Exhibit 99.1.

The information contained herein and in the accompanying exhibits shall not be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibits hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

The attached exhibits include non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP net income per share data, non-GAAP inventory turns and free cash flow for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Registrant believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Registrant’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Registrant’s results of operations in conjunction with the corresponding GAAP measures.

The Registrant believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations. In addition, the Registrant believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the periods presented. The Registrant believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of the Registrant’s intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. The Registrant further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.

For its internal budgeting process, the Registrant’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, the income tax effects of the foregoing, and significant tax matters. The Registrant’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of the Registrant. In prior periods, the Registrant has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future, there may be other items that the Registrant may exclude for purposes of its internal budgeting process and in reviewing its financial results.

As described above, the Registrant excludes the following items from one or more of its non-GAAP measures when applicable:

Share-based compensation expense. These expenses consist primarily of expenses for employee restricted stock and restricted stock units, employee stock options, and employee stock purchase rights, including such expenses associated with acquisitions. The Registrant excludes share-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses and the Registrant believes that it is useful to investors to understand the impact of share-based compensation to its results of operations.

Amortization of acquisition-related intangible assets. The Registrant incurs amortization of intangible assets (which may include impairment charges from the write-downs of purchased intangible assets) in connection with acquisitions. The Registrant excludes these items because the Registrant does not believe these expenses are reflective of ongoing operating results in the period incurred. These amounts arise from the Registrant’s prior acquisitions and have no direct correlation to the operation of the Registrant’s business.


Impact to cost of sales from purchase accounting adjustments to inventory. This represents the amount of increase in inventory valuation resulting from the fair value adjustments required under purchase accounting for business combinations. These amounts arise from the Registrant’s prior acquisitions and have no direct correlation to the operation of the Registrant’s business.

Acquisition-related/divestiture costs. In connection with its business combinations, the Registrant incurs compensation expense, changes to the fair value of contingent consideration, as well as professional fees and other direct expenses such as restructuring activities related to the acquired company. In addition, from time to time the Registrant enters into foreign currency transactions related to pending acquisitions, and may incur gains or losses on such transactions. The Registrant may also from time to time incur gains or losses from divestitures of a business area as well as professional fees and other direct expenses associated with such transactions. The Registrant excludes such compensation expense, changes to the fair value of contingent consideration, fees, other direct expenses, and gains and losses, as they are related to acquisitions and divestitures and have no direct correlation to the operation of the Registrant’s business.

Significant asset impairments and restructurings. The Registrant from time to time incurs significant asset impairments, restructuring charges, and gains or losses on asset disposals. The Registrant excludes these items, when significant, because it does not believe they are reflective of ongoing business and operating results.

Significant litigation and other contingencies. The Registrant from time to time may incur charges or benefits related to significant litigation and other contingencies. The Registrant excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.

Income tax effects of the foregoing. This amount is used to present each of the amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

Significant tax matters. The Registrant may incur tax charges or benefits in the current period that relate to one or more prior fiscal years as a result of events such as changes in tax legislation, court decisions, and/or tax settlements. The Registrant excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.

From time to time in the future, there may be other items that the Registrant may exclude if it believes that doing so is consistent with the goal of providing useful information to investors and management.

The Registrant will incur share-based compensation expense, amortization of acquisition-related intangible assets, impacts to cost of sales from purchase accounting adjustments to inventory, and acquisition-related costs, in future periods. Significant asset impairments, restructurings, significant litigation and other contingencies, and divestiture costs could occur in future periods. The Registrant could also be impacted by significant tax matters in future periods.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    CISCO SYSTEMS, INC.

Dated: August 12, 2015

  By:  

/s/ Kelly A. Kramer

  Name:     Kelly A. Kramer
  Title:   Executive Vice President and Chief Financial Officer


EXHIBIT INDEX

 

Exhibit Number

  

Description of Document

99.1    Press Release of Registrant, dated August 12, 2015, reporting the results of operations for the Registrant’s fiscal fourth quarter and fiscal year ended July 25, 2015.

Exhibit 99.1

 

LOGO

 

Press Contact:    Investor Relations Contact:
Robyn Jenkins-Blum    Marilyn Mora
Cisco    Cisco
1 (408) 853-9848    1 (408) 527-7452
[email protected]    [email protected]

CISCO REPORTS FOURTH QUARTER AND FISCAL YEAR 2015 EARNINGS

Record Revenues and Non-GAAP EPS Reflect Strong Execution and Momentum

 

    Q4 Revenue: $12.8 billion (increase of 4% year over year)

 

    Q4 Earnings per Share: $0.45 GAAP; $0.59 non-GAAP

 

    FY 2015 Revenue: $49.2 billion (increase of 4% year over year)

 

    FY 2015 Earnings per Share: $1.75 GAAP; $2.21 non-GAAP

 

    Q1 FY 2016 Revenue Guidance: 2% - 4% growth year over year

 

    Q1 FY 2016 non-GAAP Earnings per Share Guidance: $0.55 - $0.57

SAN JOSE, Calif. — August 12, 2015 — Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its fourth quarter and fiscal year results for the period ended July 25, 2015. Cisco reported fourth quarter revenue of $12.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.3 billion or $0.45 per share, and non-GAAP net income of $3.0 billion or $0.59 per share.

“I’m stepping into the CEO role at an incredibly exciting time for Cisco. We closed out our fiscal year with record revenues and record non-GAAP EPS, for both Q4 and FY15. I’m particularly pleased with the strong growth of deferred revenue which shows we are very effectively driving our business to a more predictable software-based business model, at the same time as growing revenues and earnings,” said Chuck Robbins, Cisco chief executive officer.

“These strong results show what we are capable of when we’re focused, and you can expect us to continue to drive the evolution of our portfolio to maximize the value we bring to customers in today’s rapidly changing market. The network’s strategic role at the center of everything becoming digital – today and in the future – is why I strongly believe Cisco’s best years are ahead of us.”

Q4 GAAP Results

 

     Q4 2015      Q4 2014          Vs. Q4 2014      

Revenue

   $ 12.8 billion       $ 12.4 billion         3.9%   

Net Income

   $ 2.3 billion       $ 2.2 billion         3.2%   

Diluted Earnings per Share (EPS)

   $ 0.45       $ 0.43         4.7%   

Q4 Non-GAAP Results

 

     Q4 2015      Q4 2014          Vs. Q4 2014      

Net Income

   $ 3.0 billion       $   2.8 billion         6.2%   

EPS

   $ 0.59       $ 0.55         7.3%   

Fiscal Year GAAP Results

 

     FY 2015      FY 2014          Vs. FY 2014      

Revenue

   $ 49.2 billion       $ 47.1 billion         4.3%   

Net Income

   $ 9.0 billion       $ 7.9 billion         14.4%   

EPS

   $ 1.75       $ 1.49         17.4%   

Fiscal Year Non-GAAP Results

 

     FY 2015      FY 2014          Vs. FY 2014      

Net Income

   $ 11.4 billion       $ 10.9 billion         4.5%   

EPS

   $ 2.21       $ 2.06         7.3%   

A reconciliation between net income and EPS on a GAAP and non-GAAP basis is provided in the table following the Consolidated Statements of Operations. Supplementary information related to other GAAP and non-GAAP measures is also provided in the tables below.

 

1


Financial Summary

(All comparative percentages are on a year-over-year basis unless otherwise noted)

Q4 2015 Highlights

Revenue — Total revenue was $12.8 billion, up 4%. Product revenue and service revenue each increased 4%. In terms of total revenue by geographic segment, Americas was up 7%, while both EMEA and APJC were flat. Product revenue growth was led by Collaboration and Data Center at 14% each. Switching and NGN Routing grew by 2% and 3%, respectively.

Gross Margin — On a non-GAAP basis, total gross margin and product gross margin were 62.1% and 61.0% respectively. The decrease in non-GAAP product gross margin as compared to the third quarter of fiscal 2015 was driven by pricing and product mix partially offset by productivity. Non-GAAP service gross margin was 65.9%. Total gross margins by geographic segment were: 62.7% for the Americas, 62.1% for EMEA, and 59.5% for APJC. On a GAAP basis, total gross margin, product gross margin, and service gross margin were at 60.2%, 59.0% and 64.5%, respectively.

Operating Expenses — Non-GAAP operating expenses were $4.2 billion, up 1%. Headcount increased from the third quarter of fiscal 2015 by approximately 900 to 71,833 reflecting investments in key growth areas such as security, cloud and software. On a GAAP basis, operating expenses were $4.9 billion, up 3%.

Operating Income — Non-GAAP operating income was $3.8 billion, up 9%, with non-GAAP operating margin at 29.3%. GAAP operating income was $2.9 billion, up 7%, with GAAP operating margin of 22.4%.

Provision for Income Taxes — The non-GAAP tax provision rate was 21.0% for the fourth quarter of fiscal 2015 reflecting fiscal year end true-ups. The GAAP tax provision rate was 20.9%.

Net Income and EPS — On a non-GAAP basis, net income was $3.0 billion, an increase of 6%, and EPS was $0.59, an increase of 7%. On a GAAP basis, net income was $2.3 billion and EPS was $0.45.

Cash Flow from Operating Activities — was $4.1 billion for the fourth quarter of fiscal 2015, compared with $3.0 billion for the third quarter of fiscal 2015, and compared with $3.6 billion for the fourth quarter of fiscal 2014.

Fiscal 2015 Highlights

Revenue — Total revenue was $49.2 billion, an increase of 4%.

Net Income and EPS — On a non-GAAP basis, net income was $11.4 billion, an increase of 5%, and EPS was $2.21, an increase of 7%. On a GAAP basis, net income was $9.0 billion and EPS was $1.75.

Cash Flow from Operating Activities — was $12.6 billion for fiscal 2015, compared with $12.3 billion for fiscal 2014.

Cash and Cash Equivalents and Investments — were $60.4 billion at the end of the fourth quarter of fiscal 2015, compared with $54.4 billion at the end of the third quarter of fiscal 2015, and compared with $52.1 billion at the end of the fourth quarter of fiscal 2014. $7.0 billion of cash and cash equivalents and investments was available in the United States at the end of the fourth quarter of fiscal 2015.

Deferred Revenue — was $15.2 billion, up 7% in total. Product deferred revenue grew in double-digits again in the fourth quarter of fiscal 2015 at 21%, driven largely by subscription based and software offerings, while services deferred revenue grew 1%. Cisco continued to build a greater mix of recurring revenue as reflected in deferred revenue.

Product Backlog — was approximately $5.1 billion at the end of fiscal 2015 as compared to approximately $5.4 billion at the end of fiscal 2014.

Days Sales Outstanding in Accounts Receivable (DSO) — was 38 days at the end of the fourth quarter of fiscal 2015 consistent with the fourth quarter of fiscal 2014.

Capital Allocation

In the fourth quarter of fiscal 2015, Cisco declared and paid a cash dividend of $0.21 per common share, or $1.1 billion. For the full fiscal year, Cisco declared and paid cash dividends of $0.80 per common share, or $4.1 billion.

For the fourth quarter of fiscal 2015, Cisco repurchased approximately 35 million shares of common stock under its stock repurchase program at an average price of $28.62 per share for an aggregate purchase price of $1.0 billion. For the full fiscal year, Cisco repurchased approximately 155 million shares of common stock under its stock repurchase program at an average price of $27.22 per share for an aggregate purchase price of $4.2 billion. As of July 25, 2015, Cisco had repurchased and retired 4.4 billion shares of Cisco common stock at an average price of $20.86 per share for an aggregate purchase price of approximately $92.7 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $4.3 billion with no termination date.

 

2


For the full fiscal year, Cisco returned $8.3 billion to shareholders through share buybacks and dividends, which represented 73% of free cash flow.

“We ended this year with another strong quarter. We saw good top line growth in Q4 with record revenue of $12.8 billion, a 4% increase for the quarter bringing our full year 2015 revenue to $49.2 billion – also growth of 4%,” said Kelly Kramer, Cisco executive vice president and chief financial officer. “I am pleased with our execution on our financial strategy of delivering profitable growth, managing our portfolio and strategic investments, and delivering shareholder value.”

Acquisitions and Divestitures

In the fourth quarter of fiscal 2015, we announced an agreement to sell the client premises equipment portion of our Service Provider Video connected devices unit to French-based Technicolor for approximately $600 million in cash and stock, subject to certain adjustments. We will continue to refocus our investments in service provider video towards cloud and software-based services. We expect the transaction to close at the end of the second quarter of fiscal 2016 subject to regulatory approvals.

During the quarter, Cisco also announced its intent to acquire the cloud-based security company OpenDNS to enhance the security portfolio and, along with this, Cisco announced one additional acquisition and closed two acquisitions to further complement the software, collaboration and cloud offerings.

Business Outlook for the First Quarter of Fiscal Year 2016

Cisco expects to achieve the following results for the first quarter of fiscal year 2016:

 

Q1 2016

    

Revenue

   2% - 4% growth Y/Y

Non-GAAP gross margin rate

   61% - 62%

Non-GAAP operating margin rate

   28% - 29%

Non-GAAP tax provision rate

   23%

Non-GAAP EPS

   $0.55 - $0.57

Cisco estimates that GAAP EPS will be lower than non-GAAP EPS by $0.11 to $0.15 cents per share in the first quarter of fiscal 2016 as follows:

 

Q1 2016

      

Share-based compensation expense

   $ 0.05 - $0.06   

Amortization of purchased intangible assets and other acquisition-related/divestiture costs

     0.04   - 0.06   
  

 

 

 

Subtotal

     0.09   - 0.12   

Restructuring and other charges

     0.02   - 0.03   
  

 

 

 

Total

   $ 0.11 - $0.15   
  

 

 

 

Share-based compensation expense is expected to impact Cisco’s results of operations in similar proportions as the fourth quarter of fiscal 2015. Amortization of purchased intangible assets, and other acquisition-related/divestiture costs will be reported as GAAP operating expenses, cost of sales, or other income/(loss) as applicable.

The range for restructuring and other charges includes a pretax charge of up to $200 million as a result of the restructuring that Cisco announced in August 2014. During the fourth quarter of fiscal 2015, Cisco recognized pretax restructuring charges of $78 million to the GAAP financial statements related to these actions and expects that the total charges related to these actions will be approximately $700 million for the total restructuring plan.

This guidance does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings, and tax or other events, which may or may not be significant.

Editor’s Notes:

 

    The Q4 and fiscal year 2015 conference call to discuss Cisco’s results along with its business outlook will be held on Wednesday, August 12, 2015 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

 

    Conference call replay will be available from 4:00 p.m. Pacific Time, August 12, 2015 to 4:00 p.m. Pacific Time, on August 19, 2015 at 1-866-465-1308 (United States) or 1-203-369-1425 (international). The replay will also be available via webcast from August 12, 2015 through October 16, 2015 on the Cisco Investor Relations website at http://investor.cisco.com.

 

3


    Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, August 12, 2015. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

 

4


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2015
    July 26,
2014
    July 25,
2015
    July 26,
2014
 

REVENUE:

        

Product

   $ 9,911      $ 9,532      $ 37,750      $ 36,172   

Service

     2,932        2,825        11,411        10,970   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     12,843        12,357        49,161        47,142   
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     4,068        3,976        15,377        15,641   

Service

     1,042        976        4,103        3,732   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     5,110        4,952        19,480        19,373   
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     7,733        7,405        29,681        27,769   

OPERATING EXPENSES:

        

Research and development

     1,548        1,593        6,207        6,294   

Sales and marketing

     2,549        2,473        9,821        9,503   

General and administrative

     536        508        2,040        1,934   

Amortization of purchased intangible assets

     146        68        359        275   

Restructuring and other charges

     73        82        484        418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,852        4,724        18,911        18,424   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     2,881        2,681        10,770        9,345   

Interest income

     211        183        769        691   

Interest expense

     (149     (142     (566     (564

Other income (loss), net

     (10     56        228        243   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     52        97        431        370   
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     2,933        2,778        11,201        9,715   

Provision for income taxes

     614        531        2,220        1,862   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,319      $ 2,247      $ 8,981      $ 7,853   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.46      $ 0.44      $ 1.76      $ 1.50   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.45      $ 0.43      $ 1.75      $ 1.49   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     5,086        5,121        5,104        5,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     5,131        5,172        5,146        5,281   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share

   $ 0.21      $ 0.19      $ 0.80      $ 0.72   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

5


CISCO SYSTEMS, INC.

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2015
    July 26,
2014
    July 25,
2015
    July 26,
2014
 

GAAP net income

   $ 2,319      $ 2,247      $ 8,981      $ 7,853   

Adjustments to cost of sales:

        

Share-based compensation expense

     58        49        207        195   

Amortization of acquisition-related intangible assets

     179        180        765        710   

Supplier component remediation charge (adjustment)

     —          —          (164     655   

Rockstar patent portfolio charge

     —          —          188        —     

Acquisition-related/divestiture costs

     —          1        —          2   

Significant asset impairments and restructurings

     5        —          5        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     242        230        1,001        1,562   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to operating expenses:

  

Share-based compensation expense

     338        291        1,235        1,158   

Amortization of acquisition-related intangible assets

     146        68        359        275   

Acquisition-related/divestiture costs

     79        102        351        585   

Significant asset impairments and restructurings

     73        82        484        418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     636        543        2,429        2,436   

Adjustments to other income (loss), net:

        

Gain on VCE reorganization

     —          —          (126     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     878        773        3,304        3,998   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (185     (185     (731     (834

Significant tax matters

     —          —          (200     (154
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (185     (185     (931     (988
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 3,012      $ 2,835      $ 11,354      $ 10,863   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share:

  

GAAP

   $ 0.45      $ 0.43      $ 1.75      $ 1.49   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 0.59      $ 0.55      $ 2.21      $ 2.06   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

6


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     July 25, 2015  
     Three Months Ended     Fiscal Year Ended  
     Amount      Y/Y %     Amount      Y/Y %  

Revenue

          

Americas

   $ 7,801         7   $ 29,655         7

EMEA

     3,110         —       12,322         3

APJC

     1,932         —       7,184         (2 )% 
  

 

 

      

 

 

    

Total

   $ 12,843         4   $ 49,161         4
  

 

 

      

 

 

    

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     July 25, 2015  
     Three Months Ended     Fiscal Year Ended  

Gross Margin Percentage

    

Americas

     62.7     63.0

EMEA

     62.1     62.5

APJC

     59.5     60.0

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     July 25, 2015  
     Three Months Ended     Fiscal Year Ended  
     Amount      Y/Y %     Amount      Y/Y %  

Revenue:

          

Switching

   $ 3,719         2   $ 14,741         5

NGN Routing

     1,992         3     7,704         1

Collaboration

     1,088         14     4,000         5

Service Provider Video

     994         (7 )%      3,555         (10 )% 

Data Center

     880         14     3,220         22

Wireless

     715         7     2,542         11

Security

     464         4     1,747         12

Other

     59         (3 )%      241         (14 )% 
  

 

 

      

 

 

    

Product

     9,911         4     37,750         4

Service

     2,932         4     11,411         4
  

 

 

      

 

 

    

Total

   $ 12,843         4   $ 49,161         4
  

 

 

      

 

 

    

 

7


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     July 25,
2015
     July 26,
2014
 

ASSETS

  

Current assets:

  

Cash and cash equivalents

   $ 6,877       $ 6,726   

Investments

     53,539         45,348   

Accounts receivable, net of allowance for doubtful accounts of $302 at July 25, 2015 and $265 at July 26, 2014

     5,344         5,157   

Inventories

     1,627         1,591   

Financing receivables, net

     4,491         4,153   

Deferred tax assets

     2,915         2,808   

Other current assets

     1,490         1,331   
  

 

 

    

 

 

 

Total current assets

     76,283         67,114   

Property and equipment, net

     3,332         3,252   

Financing receivables, net

     3,858         3,918   

Goodwill

     24,469         24,239   

Purchased intangible assets, net

     2,376         3,280   

Other assets

     3,163         3,267   
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 113,481       $ 105,070   
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

  

Current liabilities:

  

Short-term debt

   $ 3,897       $ 508   

Accounts payable

     1,104         1,032   

Income taxes payable

     62         159   

Accrued compensation

     3,049         3,181   

Deferred revenue

     9,824         9,478   

Other current liabilities

     5,687         5,451   
  

 

 

    

 

 

 

Total current liabilities

     23,623         19,809   

Long-term debt

     21,457         20,337   

Income taxes payable

     1,876         1,851   

Deferred revenue

     5,359         4,664   

Other long-term liabilities

     1,459         1,748   
  

 

 

    

 

 

 

Total liabilities

     53,774         48,409   

Total equity

     59,707         56,661   
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 113,481       $ 105,070   
  

 

 

    

 

 

 

Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

 

8


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited) 

 

     Fiscal Year Ended  
     July 25,
2015
    July 26,
2014
 

Cash flows from operating activities:

  

Net income

   $ 8,981      $ 7,853   

Adjustments to reconcile net income to net cash provided by operating activities:

  

Depreciation, amortization, and other

     2,442        2,439   

Share-based compensation expense

     1,440        1,348   

Provision for receivables

     134        79   

Deferred income taxes

     (23     (678

Excess tax benefits from share-based compensation

     (128     (118

(Gains) losses on investments and other, net

     (258     (299

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

  

Accounts receivable

     (413     340   

Inventories

     (116     (109

Financing receivables

     (634     (119

Other assets

     (370     26   

Accounts payable

     87        (23

Income taxes, net

     53        191   

Accrued compensation

     7        (42

Deferred revenue

     1,275        659   

Other liabilities

     75        785   
  

 

 

   

 

 

 

Net cash provided by operating activities

     12,552        12,332   
  

 

 

   

 

 

 

Cash flows from investing activities:

  

Purchases of investments

     (43,975     (36,317

Proceeds from sales of investments

     20,237        18,193   

Proceeds from maturities of investments

     15,293        15,660   

Acquisition of businesses, net of cash and cash equivalents acquired

     (326     (2,989

Purchases of investments in privately held companies

     (222     (384

Return of investments in privately held companies

     288        213   

Acquisition of property and equipment

     (1,227     (1,275

Proceeds from sales of property and equipment

     22        232   

Other

     (178     24   
  

 

 

   

 

 

 

Net cash used in investing activities

     (10,088     (6,643
  

 

 

   

 

 

 

Cash flows from financing activities:

  

Issuances of common stock

     2,016        1,907   

Repurchases of common stock - repurchase program

     (4,324     (9,413

Shares repurchased for tax withholdings on vesting of restricted stock units

     (502     (430

Short-term borrowings, original maturities less than 90 days, net

     (4     (2

Issuances of debt

     4,981        7,981   

Repayments of debt

     (508     (3,276

Excess tax benefits from share-based compensation

     128        118   

Dividends paid

     (4,086     (3,758

Other

     (14     (15
  

 

 

   

 

 

 

Net cash used in financing activities

     (2,313     (6,888
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     151        (1,199

Cash and cash equivalents, beginning of fiscal year

     6,726        7,925   
  

 

 

   

 

 

 

Cash and cash equivalents, end of fiscal year

   $ 6,877      $ 6,726   
  

 

 

   

 

 

 

Supplemental cash flow information:

  

Cash paid for interest

   $ 760      $ 682   

Cash paid for income taxes, net

   $ 2,190      $ 2,349   

Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

 

9


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     July 25,
2015
     April 25,
2015
     July 26,
2014
 

Deferred revenue:

  

Service

   $ 9,757       $ 9,236       $ 9,640   

Product:

  

Unrecognized revenue on product shipments and other deferred revenue

     4,766         4,258         3,924   

Cash receipts related to unrecognized revenue from two-tier distributors

     660         687         578   
  

 

 

    

 

 

    

 

 

 

Total product deferred revenue

     5,426         4,945         4,502   
  

 

 

    

 

 

    

 

 

 

Total

   $ 15,183       $ 14,181       $ 14,142   
  

 

 

    

 

 

    

 

 

 

Reported as:

  

Current

   $ 9,824       $ 9,371       $ 9,478   

Noncurrent

     5,359         4,810         4,664   
  

 

 

    

 

 

    

 

 

 

Total

   $ 15,183       $ 14,181       $ 14,142   
  

 

 

    

 

 

    

 

 

 

CISCO SYSTEMS, INC.

INVENTORIES AND INVENTORY TURNS

(In millions, except annualized inventory turns)

 

     July 25,
2015
    April 25,
2015
    July 26,
2014
 

Inventories:

  

Raw materials

   $ 114      $ 264      $ 77   

Work in process

     2        2        5   

Finished goods:

      

Distributor inventory and deferred cost of sales

     610        635        595   

Manufactured finished goods

     593        547        606   
  

 

 

   

 

 

   

 

 

 

Total finished goods

     1,203        1,182        1,201   

Service-related spares

     258        268        273   

Demonstration systems

     50        44        35   
  

 

 

   

 

 

   

 

 

 

Total

   $ 1,627      $ 1,760      $ 1,591   
  

 

 

   

 

 

   

 

 

 

Annualized inventory turns - GAAP

     12.1        10.1        12.7   

Cost of sales adjustments

     (0.6     (0.1     (0.6
  

 

 

   

 

 

   

 

 

 

Annualized inventory turns - non-GAAP

     11.5        10.0        12.1   
  

 

 

   

 

 

   

 

 

 

 

10


CISCO SYSTEMS, INC.

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

 

     DIVIDENDS      STOCK REPURCHASE PROGRAM      TOTAL  

Quarter Ended

   Per Share      Amount      Shares      Weighted-
Average Price
per Share
     Amount      Amount  

Fiscal 2015

     

July 25, 2015

   $ 0.21       $ 1,069         35       $ 28.62       $ 1,005       $ 2,074   

April 25, 2015

     0.21         1,070         35         28.39         1,008         2,078   

January 24, 2015

     0.19         974         44         27.63         1,208         2,182   

October 25, 2014

     0.19         973         41         24.58         1,013         1,986   
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total

   $ 0.80       $ 4,086         155       $ 27.22       $ 4,234       $ 8,320   
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Fiscal 2014

     

July 26, 2014

   $ 0.19       $ 974         61       $ 25.11       $ 1,514       $ 2,488   

April 26, 2014

     0.19         974         90         22.24         2,005         2,979   

January 25, 2014

     0.17         896         185         21.73         4,020         4,916   

October 26, 2013

     0.17         914         84         23.65         2,000         2,914   
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total

   $ 0.72       $ 3,758         420       $ 22.71       $ 9,539       $ 13,297   
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

CISCO SYSTEMS, INC.

FREE CASH FLOW

(In millions)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2015
    July 26,
2014
    July 25,
2015
    July 26,
2014
 

Net cash provided by operating activities

   $ 4,138      $ 3,612      $ 12,552      $ 12,332   

Acquisition of property and equipment

     (320     (325     (1,227     (1,275
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 3,818      $ 3,287      $ 11,325      $ 11,057   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

11


CISCO SYSTEMS, INC.

SUPPLEMENTARY INFORMATION - RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, AND OPERATING MARGINS

(In millions, except percentages)

 

     Three Months Ended  
     July 25, 2015  
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Y/Y     Operating
Income
    Y/Y  

GAAP amount

   $ 5,843      $ 1,890      $ 7,733      $ 4,852        3   $ 2,881        7

GAAP (% of revenue)

     59.0     64.5     60.2     37.8       22.4  

Adjustments to GAAP amounts:

  

Share-based compensation expense

     16        42        58        338          396     

Amortization of acquisition-related intangible assets

     179        —          179        146          325     

Acquisition-related/divestiture costs

     —          —          —          79          79     

Significant asset impairments and restructurings

     5        —          5        73          78     
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Non-GAAP amount

   $ 6,043      $ 1,932      $ 7,975      $ 4,216        1   $ 3,759        9
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

Non-GAAP (% of revenue)

     61.0     65.9     62.1     32.8       29.3  

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2015
    July 26,
2014
    July 25,
2015
    July 26,
2014
 

GAAP effective tax rate

     20.9     19.1     19.8     19.2

Tax effect of non-GAAP adjustments to net income

     0.1     1.1     1.9     1.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     21.0     20.2     21.7     20.8
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES USED IN INVENTORY TURNS

(In millions)

 

     Three Months Ended  
     July 25,
2015
    April 25,
2015
    July 26,
2014
 

GAAP cost of sales

   $ 5,110      $ 4,612      $ 4,952   

Cost of sales adjustments:

  

Share-based compensation expense

     (58     (56     (49

Amortization of acquisition-related intangible assets

     (179     (172     (180

Supplier component remediation adjustment

     —          164        —     

Acquisition-related/divestiture costs

     —          —          (1

Significant asset impairments and restructurings

     (5     —          —     
  

 

 

   

 

 

   

 

 

 

Non-GAAP cost of sales

   $ 4,868      $ 4,548      $ 4,722   
  

 

 

   

 

 

   

 

 

 

 

12


Forward Looking Statements and Non-GAAP Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our digitization strategy and execution, financial strength and financial guidance, our strategy to transition our business to a more software-based business model and recurring revenue streams, and our ability to deliver profitable growth, manage our portfolio and strategic investments, and return shareholder value) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, including our foundational priorities, and in certain geographical locations; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Forms 10-Q and 10-K filed on May 20, 2015 and September 9, 2014, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco’s results of operations for the three months and the year ended July 25, 2015 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

This release includes non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP net income per share data, non-GAAP inventory turns and free cash flow for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the periods presented. Cisco believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of its intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. Cisco further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.

For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings,

 

13


significant litigation and other contingencies, the income tax effects of the foregoing, and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

About Cisco

Cisco (NASDAQ: CSCO) is the worldwide leader in IT that helps companies seize the opportunities of tomorrow by proving that amazing things can happen when you connect the previously unconnected. For ongoing news, please go to http://thenetwork.cisco.com.

Copyright © 2015 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

 

14



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